Alamos Gold Inc. (AGI) Earnings Call Transcript & Summary

Good morning, and welcome, everybody, to our Phase 3+ Expansion Study Presentation and Webcast. My name is Scott Parsons, I'm the Vice President of Investor Relations, and I'm going to be providing a brief overview of our schedule this morning. We are going to be making some forward-looking statements throughout this presentation, so please review our cautionary notes. We have our full team here, many of which we'll be presenting today, and all will be available for questions during the Q&A segment. Starting from the top, John McCluskey , our President and CEO. Jamie Porter, our CFO; Peter MacPhail, our COO; Chris Bostwick , our Senior Vice President of Technical Services; Luc Guimond, our VP of Operations; Scott R.G. Parsons, our VP of Exploration. And from Island Gold, we have Austin Hemphill, General Manager; and Nathan Bourgeault, Chief Mine Engineer. In terms of our schedule this morning, John will be providing an introduction momentarily. Jamie is going to be providing an overview of the Island Gold mine. And then Chris and Nathan are going to go into more detail on the Phase 3+ expansion study. Jamie is going to close out that segment of the presentation with a review of the Phase 3+ economics as well as our capital allocation outlook. And then we'll turn it over to Scott Parsons to close out the presentation and review the significant exploration potential that Island Gold possesses. At that point, we're going to open the meeting up to Q&A. For those of you on the webcast, to ask a question, you will need to dial the phone numbers on the screen and enter the pass code. We will be showing these numbers again during the start of the Q&A segment. With that, I'll turn it over to John McCluskey, our President and CEO, to provide an introduction.

Thank you very much, Scott, and good morning, everybody. It is a real pleasure to be with you this morning to talk to you about this next phase of development of Island Gold. It has been an incredible journey to have acquired this asset and to have brought it to the point where we are today. When we initially purchased it, it was a relatively small operation. It was a relatively small resource, but we saw tremendous potential, which is why we wanted to acquire it in the first place. We've been looking at it for several years. We've done a fair amount of work on it. Then when we came to an agreement with Island Gold, we had an opportunity to do even more detailed due diligence. We saw even more potential, we went for it, we did the acquisition, and that was in the face of a lot of questioning from the market. But we pursued it quite aggressively. We pursued exploration quite aggressively, and we were very successful. In fact, we were successful beyond our -- even beyond our own expectations because the rate at which the reserves and resources have grown at Island Gold have far exceeded our expectations. It's also worth noting that one of the key catalysts in terms of our initial review of the project and what made us very excited about it right out of the gate was the very high rate of resource to reserve conversion. This is absolutely key in this particular project. We had never seen a project with such a high resource to reserve conversion. And I think that's going to be quite important to keep in mind as we go through the presentation today. So 2022 has been a year with some really amazing catalysts. We grew our resources and reserves to an excess of 10 million ounces this year. Island Gold itself breached the 5 million-ounce mark, which, as most of you will appreciate, is a very key mark that very few projects ever reached, let alone high-grade underground mines. Second big delivery was our La Yaqui Grande project. We've been working on this one throughout COVID. We had the positive permitting breakthrough for construction of that project right at the beginning of COVID. So it meant that we had to more or less start construction with that as a significant hurdle to overcome as we built it. And I'm very proud of that construction group because they just pursued it. They pursued that challenge in a very impressive way and ultimately delivered the project right on time. So we were saying 1.5 years ago, we wanted to be pouring gold by the beginning of the third quarter, and we actually started pouring gold in June. And we were able to actually build -- we were so confident we would do that we were actually able to build that production into our second quarter forecast. So La Yaqui Grande has been a very exciting development for us, about $168 million, but it's going to be low-cost production for the company for the next 6 years. And of course, most of you have been following the company know that Mulatos has maintained a 6-year mine life practically since we started production back in 2005. And that hasn't changed. So we're quite confident we're going to continue to see exploration success there. For the second half of the year, obviously, the biggest catalyst for the company was this Island Gold Phase III update. And we've been working on this, as you probably appreciate with quite some intensity over the last year. There's a big team of management and engineers that have been involved in the project. And I think if you reviewed the release that we published after the close yesterday, you'll see that we've come to a very positive conclusion on this update. And we're quite excited to present the details of it to you this morning. Given the fact that we're going to be committing quite a bit of capital to Island Gold over the next few years, it seemed to be a logical step to make to essentially push back the development of our Lynn Lake project. It's almost a natural thing in any case because we're still going through permitting at Lynn Lake. There's an awful lot involved in that, especially where the federal side of things are concerned. It involves completing our IBAs with First Nations in the region. And that is just going to take a little more time in any case. But we're intending to get the bulk of the funds spent developing Island Gold before we start in Lynn Lake. In that way, we're going to be able to maintain a decent level of free cash flow and support the dividend and so forth. And that was the rationale behind that decision. So just focusing on a few highlights on the expansion study itself. After very careful consideration, we looked at the fact that we added another 1.4 million ounces of gold since the last Phase III update. And it's also not the last ounce of gold we're going to find. Island Gold, we're quite sure is going to get considerably bigger than what the numbers that we're presenting today are. And in that case, where do you go with it? Well, in our case, we decided that a 2,400 tonne per day mine was the way to go. So essentially 400 tonnes a day higher than what the original Phase III study contemplated. It shows a 20% growth in production over the -- over a much longer mine life, essentially an 18-year mine life. That's staggering when I say those numbers because I've been in the mining industry for a long, long time. It's very rare where you have a high-grade, low-cost mine like Island Gold with an 18-year mine life. That's staggering. That's just really something that we come across. And to think that this is falling into our hands, and we have the opportunity to build it to a point where it could be the key asset for Alamos in the years to come. The fact that costs have come in at an industry low $576 per ounce, that's all-in sustaining costs. That is, again, a very good outcome given that we're well aware, we're in an inflationary period right now. We factored in the cost -- the additional cost that inflation has brought to bear on the project over the last 18 months. And we've still come in with this very attractive cash cost base. It's going to generate $223 million in free cash flow, and that's at a $1,650 gold price assumption, $260 million in free cash flow, if you assume an $1,850 gold price. So this is going to be an absolute juggernaut of an asset for Alamos in the years to come. And I think those numbers just speak for themselves. Effectively, this study, which really goes against what has been mostly happening in the industry, especially with the inflationary pressures that we're all facing. The fact that we've come up with a project that's larger in scale, it's a more valuable operation, it contemplates a much larger rate of production over a much longer period of time at a very low cost. It has driven the net present value of this project to close to $2 billion of value. When you consider we acquired it for $620 million, we've made over $200 million in free cash flow from operations up till now. We've obviously invested very heavily in exploration. But we've driven the value of this project higher, year-by-year, since we've owned it. And we think that this development is just the next logical step. Another benefit, not the least of the benefits by any means, but another key benefit of going from shifting from a ramp operation to a shaft operation, is the fact we're going to need far less diesel power to produce gold from this mine. We're effectively going to be able to reduce our need for diesel trucks from about 18, which is where we were going as the mine deepened. We're going to be able to reduce that down to 5 diesel trucks, which is a 35% reduction in our carbon footprint at this operation. And that is a very key component to helping us achieve our target of a 30% overall reduction in our carbon footprint by 2030. So our benefits from this Phase III plan are really right across the board and in my opinion, more than justify the capital outlay that we're about to spend in order to get us to where we need to go by 2026. So what are we building here? Island Gold, as everybody knows, is a gem of a project. It's by no means the biggest project right now. It's a very good grade, one of the highest grade gold mines in Canada at just over 10 grams. But it's a 1,250 tonne per day operation. It's been producing between 140,000 and 150,000 ounces a year since we've increased that throughput from 900 tonnes a day when we acquired it. But this step we're taking is pretty substantial. We're effectively doubling the capacity of the operation. And where it takes us, it basically will -- it will create the seventh largest gold mine in Canada. It will be the lowest cost gold mine in Canada. And in terms of profitability, it will be in the top 5. This is the only asset of this caliber of this scale that isn't in the hands of a major mining company in Canada. And it's also interesting to note that our Young-Davidson mine makes the list as well. So these are incredibly valuable assets for us. They're great assets for Canada. And when you consider that back in 2014, when we set -- we only had a single mine at that point. That was the Mulatos mine in Canada, but we -- pardon me, the Mulatos mine in Mexico, but we wanted to get into Canada. We knew that the political risk in the world was increasing. And one of the best places to operate was right in our own backyard. Now our head office is right here in Toronto. And we saw that there was a real opportunity with the downturn in the market to look at Canadian assets and set about on a strategy to acquire Canadian assets. So we -- from a standing start in 2015 by -- essentially by 2017, we had both Young-Davidson and Island Gold. By 2020, we finished the scale-up of the Young-Davidson mine, building out all the lower mine infrastructure. So now it's producing roughly 200,000 ounces a year and generating over $100 million in free cash flow. We took on Island Gold at the end of 2017. And here it is today, over 5 million ounces, and now about to undergo a doubling in size with the Phase 3+ update. So I would say that we've more than achieved our goals in terms of getting into Canadian operations. And this slide, which is one of the last slides I'm going to talk to, it really illustrates visually just how significant Island Gold is on the Canadian landscape. As we make this investment, we move it from -- it's a relatively low-cost mine. It's one of the smaller mines that you'd see on this chart. But look where it goes with this investment. In terms of profitability, it moves right to the top and effectively right to the middle of the pack in terms of scale. So this is obviously a huge undertaking for Alamos. It's the single largest capital investment that we've ever made in a single project. We're very confident in our ability to do it. We've done already a tremendous amount of work to derisk this project. Effectively, most of the earthworks are finished. We started by having the permits in place in order to already address the tailings facility 2 years ago. So we basically finished that. This is where most of the projects that we've seen budget blow ups on in Canada. This is where they've typically gone wrong on the earthworks front. And we've really derisked the project from that perspective. So going forward, we see just a tremendous future for the company. We've got 3 great assets now, long life, low cost. We've got some investment to do now. That's what you -- that's what hopefully we should be doing as a mid-tier growth company. And we are very gratified to just have one of the best assets in the world in which to make this investment because the payoff for our investors, our employees is just going to be tremendous. You can see that our objective to get up over 600,000 ounces a year will clearly be met with this pace of development of Island Gold. And we still have Lynn Lake in the pipeline, and we're very impressed with that project. We see a lot of growth potential there. It's already grown substantially since we acquired it. I think it just bodes well when you consider that with the development of Lynn Lake, which is next in line. We can take our production upwards of 800,000 ounces a year. So with that, with those opening remarks, thank you very much for tuning in and for your time and attention. I'm going to turn over the presentation to Jamie Porter, who's going to discuss some of the financial metrics of the project. Jamie?

Thanks, John, and good morning, everyone. So before I give an overview of Island, we are going to watch a video that we put together that really summarizes the evolution of Island over the past few years, and where we're going in terms of the Phase 3+ expansion. So I'll play that now. [Presentation]

Hardly have said it better myself. So that's a good overview of Island. I'll make some additional comments with respect to the development of the asset over the past several years. And I'll turn it over to Chris who's going to walk us through the details of the Phase 3+ expansion and what the future holds for Island. So this mine started operation in 2007. Island has produced 1.1 million ounces to date, but we have seen very significant reserve and resource growth as well as production growth in the last 4.5 years since we've owned it. From a corporate perspective, we've been very focused on really optimizing this asset. We've invested almost $100 million in the last several years in repurchasing a 3% NSR, a 15% NPI and as was referenced in the video, acquiring additional concessions from Trillium mining. So what we've done is we've really set up Island for long-term profitability. We've reduced the royalty and economic burden associated with past agreements significantly and set Island up to be profitable for the long term. We referenced in the video, the tremendous exploration success that we've had. This deposit has grown in leaps and bounds when we acquired it in November of 2017. We had 1.8 million ounces across all categories. That grew to 3.7 million ounces as of the end of 2019, which formed the basis for our July 2020 Phase III shaft expansion to 2,000 tonnes per day. And here we are now, as of the end of 2021, 5.1 million ounces across all categories. And that's what forms the basis for the mine plan that we're putting forward as part of the Phase 3+ expansion to 2,400 tonnes per day. So we've increased reserves and resources, but importantly, we've also increased grades. Our reserve grade has gone from 8.7 grams per tonne. We initially acquired Island to north of 10 grams now. We've seen a 33% increase in inferred grades. So that just means every ounce that we found has become more profitable given those higher grades. Another important point to note is the cost of adding those ounces. Our discovery cost is only $12 per ounce over the course of the past 4.5 years. That's really how you add value in the mining industry by finding high grade and therefore, highly profitable ounces at only $12 an ounce discovery cost. We've added tremendous value to this asset. So as our reserves and resources have grown, we've tried to keep pace by expanding production. We've gone from a rate of 900 tonnes of underground mining and processing per day when Richmont owned Island to -- we quickly moved that up to 1,100 tonnes per day and then a couple of years back to 1,200 tonnes per day, which is where we're operating now. So we've seen, obviously, a corresponding increase in our ounce production. We've gone to a range of between 130,000 and 150,000 ounces of production over the last several years. And as production has increased, we benefited from economies of scale, which have driven the cost on a per ounce basis down. So growing production at lower costs has led to a significant increase in free cash flow. You can see in 2017 and 2018, we generated marginal free cash flow but a significant increase starting in 2019. And in 2020, we did over $100 million in free cash flow, net of $81 million of capital spending. We increased our capital spending in 2021 as part of the Phase III expansion, but still generated $53 million of free cash flow. So since we've owned this asset, we bought it for $600 million since we've owned it. We've recovered $200 million in free cash flow to date. So it's done a fabulous job of financing its capital expansion and returning free cash flow to the corporate coffers. So this is my favorite slide in this part of the presentation because it really highlights the amount of value that we've added through the Island acquisition. Again, we acquired this mine for $620 million back in 2017. With the Phase III expansion we published in July 2020, we were able to demonstrate that Island had a value of $1.3 billion. With the Phase 3+ study and expansion to 2,400 tonnes per day that we're putting out today, we can demonstrate that island's worth north of $2 billion at current gold prices. So we've created tremendous value and this is going to continue to be a growing and exciting asset for Alamos in the years ahead. So with that, I'll turn the presentation over to Chris, who's going to get into the details of the Phase 3+ expansion.

Thanks, Jamie, and good morning, everyone. So why have we done another expansion study? Well, the reserve and resource base has increased by 37% since 2020. We saw some opportunities to accelerate access to higher grade additions and to optimize the production rate to reflect the larger ore body as well. We want to incorporate some scope changes and the industry-wide inflation impacts that we've been seeing. Here, we see the resource base used for the 2020 study. The color blocks represent individual stopes included within that mine plan with the red stopes being over 20 grams per tonne and the red vertical line representing the shaft. Here outlined, we see the main areas of the resource base increase since 2020. The larger box, the white outline, we see the expansion at depth to the east with higher grades. And in the smaller upper outline, filling in of Island East with higher-grade material that allows for early access or earlier in the mine plan. Here is a summary of the key changes with the Phase 3+ Expansion. The largest, of course, is the addition of the 1.4 million ounces to reserves and resources. We've increased our production rate to 2,400 tonnes per day from 2,000 tonnes per day. There's 28 kilometers of additional development life of mine, and that's attributable to the resource increase that we've seen. And there's $100 million of development capital that has moved forward from sustaining capital into growth to support the increase in the production rates. And as well, we're up expanding the mill from 1,200 tonnes per day to 2,400 tonnes per day. This expansion is going to produce a larger and more valuable operation, 44% more ore allows for a 20% increase in throughput and an increase in the mine life. Given the large resource base, scope changes and inflation, life of mine capital is going up to $1.5 billion. Growth capital has increased to $756 million and includes $100 million in accelerated development to get to 2,400 tonnes per day. However, this is being done with a lower capital intensity than the previous study. We were spending 4% less capital per ounce and our all-in cost per ounce, including total capital is reducing by 3%. This provides for a 25% increase in NPV from the previous study at $1,650 gold and a $2 billion of NPV at spot gold. So some of the assumptions that we're using for the study. First off, we're using -- assuming that the reserve at 87% of the December 31, 2021 resources are mined. Base case gold price is $1,650 gold, with a U.S. dollar exchange rate of 0.78:1. And all subsequent numbers presented in the presentation from here will be from January 1, 2022. In this slide here, I'll just focus on the last 2 boxes, which is what we've achieved since the 2020 study. We've upgraded service infrastructure to prepare for a larger, longer life project. We've completed Phase I of the tailings expansion. We've increased the resource base to over 5 million ounces. And we've completed permitting to begin shaft sinking, and we are about to start the pre-sink in this coming quarter. The planning process for this study follows the same methodology as we used in the Phase III study, stoping shapes developed with the stope optimizer in development and underground infrastructure laid out in detail. Sequencing is resource driven and operating cost and productivities are derived from first principles and from the mine's operating experience. Whereas the Phase III 2020 study was done to a PFS level, the majority of the Phase 3+ study has been done to a feasibility study level, with detailed engineering being completed on the shaft in the hosting facilities. In most areas, we've attained pricing following a competitive RFP process and awarded contracts to the best overall proponent. We've also updated cost estimates for equipment supply and construction services during this period of rapid inflation and high demand. So we feel this introduces robustness to those estimates. Contingency on the various infrastructure project elements ranges from 10% to 30%, with higher levels in those areas not completed to feasibility study levels. It's important to note that 90% of the earthworks have been completed. And this is an area, as John mentioned earlier, where in a lot of greenfield, there a lot of greenfield projects run into trouble. The tailings dam footprint has been expanded with no additional earthworks required going forward. The shaft site has been cleared and grubbed. The mill expansion area is on bedrock. And the level -- with the level of earthwork completed and with over 50% of shaft infrastructure already contracted, the expansion is significantly derisked. So to give some examples of the progress to date, the tailings dams, the earthworks for the life of mine have been completed with the next lift to be added in 2024. Again, initial tailings dam construction is where a lot of projects have underestimated capital. Were done here. With pace backfill, we have sufficient capacity within the existing footprint for existing reserves and resources. The shaft site has been cleared with pre-sinking to start in August. Shaft sinking itself starts in Q3 of 2023, and initial production from the shaft is expected in Q1 of 2026. The new camp was completed last year and is able to accommodate our peak production workforce and a temporary at least construction camp will be installed later this year. A new admin building in Dubreuilville added last year, and a new warehouse has just recently been completed. And finally, a fully equipped underground shop on the 620 level has been completed. This will allow us to increase efficiency by having mechanics closer to the face in negating the need or the requirement to bring equipment to surface for servicing. So 32% of the Phase 3+ capital has been committed with a focus on -- right now on the shaft and the associated infrastructure. The bulk of the capital in the shaft area has been committed, including shaft sinking, the head frame and the hoisting plant. Contracts have been signed, equipment is on order. So the impact of inflation will be limited within this area. Doing all this work has been a group of highly experienced firms combined with our dedicated project team. On the mineable resource side, we took all of the reserve and a portion of the reserves -- sorry, resources with dilution applied to come up with a mineable resource. One can see that on the inferred resource line, the in-situ grade of 13.6 has been reduced to 11.3 grams per tonne after the application of dilution. This has resulted in an 87% net conversion of resources with a resulting 4.6 million ounces included within the mine plan. Islands had a great history of converting resources to reserves and replacing mine depletion. In fact, mine depletion has been replaced each year since 2013. And over 100% of their inferred resources at Island when Alamos acquired it in 2017 have been converted to reserves. This is a high-quality, high-grade resource with proven continuity, and it's only conservative classification relative to dural density that calls it inferred. I'll now turn it over to Nathan Bourgeault, our Chief Mine Engineer at Island to discuss mining.

So we'll get started with a quick overview of the mine plan from the 2020 Phase III study you can see on the eastern side of the [ pause ] and read the shaft installation also included a pace backfill plant and a continuation of the longitudinal retreat long-haul mining method, which we is currently used in Island. Transitioning to the current mine design. With the new mine design, we see a 43% increase in mine oil resource with the bulk of that increase in the eastern expense of the deposit in very close proximity to the shaft infrastructure. This increase in mineable resource does require an additional 28 kilometers of development within $100 million of capital development and underground infrastructure being advanced to the project period to support the ramp up to 2,400 tonnes per day. It's important to note that this development will be required in all scenarios of mining, including the current 1,200 tonne a day ramp operation. Looking at our production schedule, we reach our full 2,400 tonne per day throughput by the end of 2026, with the ramp-up supported by the increased availability of mining horizons in proximity to the shaft development. Lower mining rates in 2025 are partially offset by higher mining grades earlier in the mine life. As mentioned previously, we see a 30% increase in development meters in the current mine design, and this is directly related to the increase in mineable resource. We see peak development in the years of 2024 and 2025 to support the ramp up to 2,400 tonnes a day and to further develop exploration platforms deeper in the mine. And the current mine design includes $162 million of accelerated development capital that's, as compared to the 1,200 tonne a day operation, it's important again to note that this capital development would be spent in all mine plans and as required earlier to support higher throughput. Looking at the grade distribution from the 2020 study against the current mine plan. We see the growth in the deposit, specifically the number of high-quality stope blocks near the shaft in close proximity to the shaft. The focus of the lateral development program during the project period is in accessing these high-grade stopes in the lower eastern extents of the deposit to support the ramp up to 2,400 tonnes per day and to provide access to higher mining grades in 2023 and 2024. Looking at the grade profile as compared to the 2020 study, we see improved grades earlier in the mine life, specifically in 2023 and '24, with a much more consistent grade profile throughout the mine life, supported by the increased tonnes and greater depths. Looking at annual gold production. The accelerated access to higher grade supports increased output in 2023 and 2024, which offset some of the tonnage related decreases in 2025. Post project average annual production gross 287,000 ounces per year with a 4-year window where we're above 300,000 ounces between 2029 and 2032. It's important to note that the current production profile assumes only current mineable resources and assumes no additional discoveries beyond that. Moving on to operating costs. Island Gold continues to be a low-cost producer with recent cost increases related to inflation being offset by improved grades and economies of scale offered by the higher throughput. We see our life of mine all-in sustaining costs dropped from $627 an ounce to $610 an ounce. Island Gold continues to have a very consistent cost structure with labor continuing to be the biggest component of the overall operating cost structure. Power and diesel are a relatively small component of our operating costs. With diesel making up approximately 3% of that total, and our exposure to diesel decreasing post project with the commissioning of the shaft. We see a very consistent cost structure compared to the 2020 study with respect to unit operating costs, very and a stable operating cost as mining moves deeper post project completion. The mine site all-in sustaining cost is consistent with the Phase III study with some variations from grade variability throughout the life of mine and provides an industry low all-in sustaining cost of $576 an ounce post project. Now what really excites me about Island Gold is the growth of the deposit at depth. We're seeing a further increase in tonnes, grade and ounces per vertical meter below the 1,000-meter elevation, with the bulk of this growth since the 2020 Phase III study being in very close proximity to the shaft infrastructure. It's this growth that supports the increase of 2,400 tonnes per day. It increases available mining horizons, which improves our operational flexibility and helps keep costs low as we mine deeper. Looking at this graphically, you can see the trend of increasing grade and ounces per meter at depth. At the moment, the only reason we see the chart trail off below the 1,500 meter elevation is due to limited drilling. And with that, I'll hand it back to Chris to discuss capital.

We'll now talk about the infrastructure and the capital required to build it. We'll start out with the surface plant of the mine and plant infrastructure. The mills are located at the north end of the map near the top of the slide. The portal entrance to the existing ramp is in the center of the map. The shaft side is on the south end of the map or in the lower right corner of the slide. And the planned paste plant is close to the portal. On this general arrangement of the shaft area, we can see the head frame at the top or north of the drawing with the hoist house to the south and the main substation to the south of that. Since the Phase III study, we've added a bin house to the head frame to allow for more efficient transfer of ore to the surface haulage fleet. The water treatment plant is located to the west of the head frame, and ancillary facilities are located to the east of the head frame. Other than the addition of the bin house, the hoisting facility design hasn't changed since the Phase III study. The facility is designed to be able to hoist from a 2,000 meter depth to allow for the opportunity to exploit future deeper exploration success. The current plan is to sink to 1,373 meters in depth. That depth, the combined ore and waste hoisting capacity is 4,500 tonnes per day, well above our planned rates. We received a long section with the planned depth of 1,373 meters and the potential depth of 2,000 meters. The shaft is centrally located within the center of gravity of the resource increases that we've seen over the last few years. Here in the bottom graph, we can see the annual combined ore and waste mining rates, showing a maximum of 3,600 tonnes per day, well within the 4,500 tonne per day capacity. Should we deepen the shaft to 2,000 meters, we'd be able to mine at a combined rate of about 3,500 tonnes per day. The shaft facility will also be equipped with the service hoist for transporting personnel materials. The double deck cage will be capable of transporting the entire operating crew underground in well under an hour. This is key to our increasing productivity and time at the phase. Currently, the ramp access -- with ramp access, we're taking up to an hour on each side of the shift to transport our people to and from the face. This time would increase significantly with depth with a ramp on the access. The hoist house has colocated production and service hoists. Here on the right side, we can also see the bin house used to directly load ore and waste to the surface haul trucks. This is added scope and is economically justified with the increase in production rates and the increased resource base. Also new in scope to the Phase 3+ study is a hoist drive cooling building to the left of the hoist. With the Phase III plan, Phase 3+ plan, we are expanding the paste plant to 2,400 tonnes per day. Paste will allow us to increase our mining recovery by reducing the requirement for [ sill ] pillars. With paste fill, we expect to be able to recover about 140,000 additional ounces over the life of the mine. It also allows for faster stope cycling times and increase geotechnical stability. The paste plant is expected to cost $52 million. This includes the initial -- and this includes the initial underground distribution system. Ongoing paste distribution is in sustaining capital. On the mill side, we're expanding the existing mill from 1,200 to 2,400 tonnes per day and a flow sheet, the green box depict new equipment added, and the orange boxes indicate modifications to existing equipment. We're adding a new 2-stage crushing plant. An additional ball mill will allow us to convert the existing circuit to 2 trains. We will convert 5 leach tanks to CIL and add 3 new larger tanks. We are adding a new ADR plant to handle the extra gold produced, and we are adding a cyanide destruction circuit to the plant. The cost is expected to be $76 million with most of the components to be new or refurbished. The P3 2020 study, 2,000 tonnes per day had an expanded mill as well. What's changed here is that we are adding a new crushing circuit and covered stockpile. We're converting the [ seat ] to CIL and adding additional tanks. We've upsized the ADR from 5 tons -- to 5 tons from 3 tons. Yes. So given the scope changes the scope of all these changes, we also took the -- took the construction of an entirely new plant to a feasibility level. However, given the current cost environment, the capital cost for a brand-new plant was not offset by the reduction in operating costs that we'd offered. And additionally, the 2 trains with the expanded plant, will give us greater operational flexibility. Capital has increased with the Phase 3+ plan and has been driven by a 43% larger resource, the expansion of 2,400 tonnes per day. with additional scope changes and industry-wide inflation. However, the Phase III plan expansion comes with the lower capital intensity, $344 per ounce versus $359 per ounce in the 2020 study. This results at $ 1,650 gold and a 25% increase in NPV to $1.6 billion with the expansion and larger resource more than offsetting inflation. Looking at growth capital changes since Phase III 2020 study. We had $146 million increase from scope changes and the larger resource. We have $100 million in accelerated development to get to the 2,400 tonne per day mining rate Again, note that this originally would have been sustaining capital, and we have $75 million in inflation, which equates to about a 14% inflation rate. And in the last 2 years, we spent $103 million giving us $756 million going forward from the beginning of this year. On the sustaining side, the larger resource has added $211 million in capital, primarily in additional development meters to access the expanded resource. Inflation accounts for $63 million, which equates to about an 11% inflation rate. We spent $73 million in the last 2 years, giving us $777 million in sustaining capital going forward. This slide provides a little more granularity on the growth capital. We can see the increase in mill and paste plant costs due to their upsizing and inflation. The effluent treatment plant is new scope to the project. Again, $100 million of the increase is what would have been sustaining capital brought forward in the plan. We're showing growth capital intensity at $160 million -- sorry, $160 per ounce is lower than the previous plan. On the sustaining side, the bulk of the increases are attributable to the 43% increase in resources and the associated development requirements. We're sustaining capital increasing by only 35%. We become in with a 6% lower capital intensity than the previous plan. So this is a high-level overview of the project schedule. We have earthworks being completed in September. The pre-sink starting in this next quarter. Shaft sinking starting in Q3 2023, and the shaft in paste plant construction starting in Q3 2024. Initial production from the expansion occurs in Q1 2026. The shaft operation is going to give us a 35% reduction in total carbon emission versus us continuing with ramp access mining at 1,200 tonnes per day. This is primarily because we require only 5 underground haul trucks with the shaft as opposed to 18 required to support ramp mining at 1,200 tonnes per day. On an intensity basis, this results in a 31% reduction in emissions. Island Gold is already an industry leader in terms of emission intensity. In the graph -- in the graph, you can see that the industry average for underground mines is 0.47, and we are currently at 0.16. With the shaft in at 2,400 tonnes per day, we will see a further intensity reduction of 31%. And this is a key component of the 30% reduction by 2030 commitment that Alamos recently announced. On the permitting side, we are in receipt of the closure plan amendment that allows for shaft sinking and construction of the associated infrastructure. We will be doing a second CPA and 2 ECAs. These ECAs aren't required into closer to the mill and paste plant work. We've received a number of closure plan amendments and ECAs at both Island and Young-Davidson, and we understand the process and the time lines well. I'd like to hand it back to Jamie. He is going to go over the overall project economics.

Thank you, Chris. So I'm going to briefly summarize the economics of the Phase 3+ expansion. I think Chris did a really good job of outlining how the capital intensity is better under the Phase IIIs expansion. But by building a bigger project, we make this a more valuable operation virtually every way. Our gold production is increasing significantly from 3.1 million ounces over the life of the mine to 4.5 million ounces, which is going to drive revenue to over $7.2 billion. If you look at cash flow, because of the low-cost nature of Island Gold, this is a very profitable operation. If you look at free cash flow over the life of the mine on an undiscounted basis, at a $1,650 gold price, this operation will generate $2.8 billion of undiscounted free cash flow. Again, at a $1,650 gold price and discounting that at 5%, you get to a net present value of $1.6 billion and at current gold prices, that increases to north of $2 billion. So a 25% IRR. Just a fabulous project. This slide showcases the free cash flow profile under the Phase 3+ expansion of the $1,650 gold price. You can see that we hit about breakeven in 2026 and after that generate tremendous free cash flow over the life of the mine. This represents a 35% increase in total free cash flow under the Phase 3+ study relative to the Phase III study that we published 2 years ago. So from an economic perspective, this is a no-brainer. It's the highest IRR, free cash flow and NPV. It increases our production quite dramatically, while maintaining what are going to be some of the lowest reported all-in sustaining costs anywhere in the industry. It's better from a capital intensity perspective. And when we talk about capital intensity. I mean, we're comparing to the Phase III study that was done 2 years ago without adjusting for inflation. So it's actually better for you to do that. And every additional ounce that we find and incorporated into the mine plan reduces the capital intensity on a per ounce basis as well. So a far superior expansion under the Phase III plan. By making this a bigger and lower cost operation, we're also making it more efficient, more productive, which positions it well to be profitable over the long term. And having that low cost structure makes Island far more resilient from a gold price perspective. If the gold price were to be cut in half tomorrow, Island Gold is still generating tremendous free cash flow. And it's still highly profitable. There's very few mines anywhere in the world that could say that at a gold price half of where current spot is. Conversely, at higher gold prices, with a higher production, we've got more exposure and leverage to an increase in gold prices. So you can see in the sensitivity chart at the $ 1,950 gold price, the value of Island under the Phase 3+ scenario increases to $2.2 billion, and the IRR increases to 26%. Now from a capital allocation perspective, we've got 2 charts here, very similar to what we presented back 2 years ago with our Phase III 2,000 tonne per day expansion. At a $1,650 gold price, we showed that we require a modest investment of about $200 million from our other operations to finance this expansion. So the majority -- the vast majority of that $750 million of growth capital is financed out of operating cash flow at Island Gold. But once that expansion is complete, we averaged $223 million of annual after-tax free cash flow, again, at a $1,650 gold price. If we look at that same analysis at $1,850, we cut the requirement of funding from our other operations down to about $140 million, and we increased the average annual after-tax cash flow to $260 million starting in 2026. So this is -- this project requires 0 external financing. We've got lots of cash flow coming from each of Young-Davidson and our Mulatos operations to help subsidize this expansion. And I think John mentioned it in his opening remarks, we have made the decision to defer Lynn Lake and really focus our capital and attention on the Phase 3+ expansion. And what that does is it provides us with free cash flow through this growth period. So we're going to be about breakeven this year in terms of our cash balance. But through 2023 and 2024, we're generating about $150 million a year of free cash flow. And we talked about our multiyear expansion of the lower mine at Young-Davidson. We completed that in 2020. Now Young-Davidson generating $100 million a year in free cash flow. We just a few weeks back, completed construction of our La Yaqui Grande project in Mexico. That's been a 2.5-year build where we've been investing pretty significantly in that. Now that's up and running, that will generate about $100 million a year in free cash flow. So we've got lots of cash flow from both Young-Davidson and coming out of Mexico to support the investment in Island Gold. And given its low-cost nature, it's generating sufficient cash flow from operations to finance the majority of the expansion itself. So we're in great shape from a balance sheet perspective over the next several years. And again, in 2025 and beyond, we're going to see dramatic increases in our free cash flow. So with that, I'll turn the presentation over to Scott R.G. Parsons, to walk through the exploration side of the story.

Thank you very much, Jamie. Everything we've talked about today is based on the existing 5.1 million ounce reserve and resource. What I want to highlight is the tremendous exploration potential that we have at Island Gold, including past production of over 1 million ounces. The total endowment of Island Gold is 6.2 million ounces. So just to reiterate, significant orogenic gold deposit, and we see a tremendous potential for continued growth. So before I dive into it -- we've seen these slides a few times, but just to recap on the growth of the deposit. When we almost acquired Island Gold in 2017, total resource and reserve base was 1.8 million ounces. 2 years later, the deposit evolved, doubling in size, adding 2 million ounces to 3.7 million ounces net of depletion. 2 years later at the end of year-end 2021, again, a 37% increase of 1.4 million ounces to 5.1 million ounces. And I'll touch on the lower portion of Island East. So you can see at the bottom right of the resource block which is a phenomenal portion of the deposit, but significantly wider and higher grade intersections. Over this period of time when, notable point that Jamie touched on it was including past production since 2017, we've added 4 million ounces of high-grade gold and all of that at discovery costs, which is industry-leading at $12 an ounce. The 2021 drilling highlights. We were successful in 2021 at intersecting and expanding mineralization across Island Gold, the 2-kilometer strike length, but really the highlight of the year was this Island East, which is driving the Phase III expansion. Not only on the upper portion of this image, do we add new reserves from basically what was previously nothing that we drilled from underground exploration drifts we just put in place. We also targeted the lower portion of Island East and you see some of the best drill holes from Island highlighted there. The best ever, in fact, at 25-08, which is 71 grams per tonne or 39 cut over 21 meters true width. That's the best hole out of over 1.3 million meters of drilling and 7,000 drill holes at Island. As other notable intersection, I'll point out here is MH27-02 in the bottom -- very bottom right of the image at 11.9 grams per tonne over 4.6 meters. This is a 300-meter step out that we did down plunge of the Island East ore shoot. We intersected the structure. This is outside of the current Phase 3+ mine plan. So it just really points to that ongoing exploration upside at Island. The last point I'll make on this is all the drilling we're doing with what you're seeing in the reserves and resources. It's a long a structure we call the E1E structure, which hosts the majority of the reserves and resources of Island. Even at these depths we're drilling from surface, predicted [ dice 5 ] patterns. We're intercepting that structure within 5 to 10 meters of where we expect to intersect it. So it just shows how predictable it is. And with the grade continuity within it, we understand now in terms of the geologic controls from everything we've been mining and seeing underground. and tying that into the drill core depth. So it's a high-quality inferred resource at a good drill spacing that some would even call indicated in other deposits. In 2022, our exploration budget is $22 million for mine exploration at Island. This includes 27,000 meters of underground -- a underground exploration drilling from the drill platform shown in the blue boxes. This is working on expanding the resource laterally on key levels where we're already mining or near mining, so near-term ounces. And then also the surface directional program at depth, where you can see 30,000 meters plan targeting the down plunge extension of Island Gold and a lot of that drilling 5 drills turning now, 3 of the 5 are focused in that high-grade Island East area. The other 2 are working on stepping out of mineralization on Island Main and West. This is a great longitudinal, you probably seen it before, but I think it highlights the potential of Island longer term. Just looking at something like Campbell Red Lake, 70 years of production, 20 million ounces produced, significant reserves and resources ahead of it. La Ronde is another good example in production for 35 years, 6 million ounces produced in the significant reserve and resource base. One commonality that you'll see in our key and orogenic gold deposits is the significant vertical component or the down plunge component relative to the surface expression or the on strike component. And that's a common theme with the deposits that are controlled by ore shoots. And at Island Gold, you can see really the potential to extend this deposit at depth is significant. We're really just scratching the surface down to 1,500 meters. We've -- Island has been in production, 15 years, just 1 million ounces produced with a 5 million-ounce reserve and resource ahead of it. With the underground exploration -- or with the Phase III underground infrastructure that will be in place, it really opens up opportunities for us at shaft bottom, lateral underground development at the base of the shaft to continue expanding the deposit at depth. And we're also contemplating a hanging wall exploration drift, which would get us right in front of the deposit and allow us to both infill drill and expand the deposited depth. The last point I'll touch on is our property position in the Michipicoten Belt. This is a significant opportunity for our team to have 15,000 hectares. We expanded the land package by acquiring Trillium in 2020 by about 5,000 hectares or 50%. This was key for us, not only for the down plunge extension of Ireland, but also the regional potential host 2 historic high-grade mines, a number of high-grade showings. What this allows us to do now is take a district scale or a belt scale approach to building out the geology and targeting based on what we know now as the controls of mineralization. Whereas historically, the challenge in this belt, has always been people holding smaller portions of land, and you're only working within that land that you own, but the key for this type of organic gold exploration is understanding structures, understanding controls and mineralization and we can do that now and target accordingly. So the white stars indicate some of our mine exploration targets outside of the Island Gold reserve and resource and then also some of the regional targets that we're working on in 2022. And with that, I'll turn the presentation back over to John for some closing remarks.

I know that's an awful lot of information to digest. Virtually, every presenter had some very key points to make that clearly illustrate the tremendous potential of this project as well as the ongoing value proposition as we continue to produce from the mine. The whole aspect of risk is one that is clearly in certainly every member of this management team's mind when we go to present a project like this. And the fact that we have gone to tremendous lengths to derisk the project prior to completing this Phase 3+ study and presenting it to the market, I think that bodes very well for our ability to execute on this next phase of development. We are now going to open the presentation to questions and answers. Scott Parsons is going to be coordinating that. We have some participants here in the room, but we also have a number of people that will be we'll be participating online. So Scott will effectively ask for anyone online that has questions to start queuing those questions up. It's a good opportunity, given the breadth of information that we've just presented to you, a good opportunity for you to question us on that information now. Scott?

Thank you, John. As a reminder, for those of you on the webcast, to ask your question, please dial the numbers on the screen to join our conference line, and you'll need the participant pass code. So Valerie, please, if you could provide the polling instructions to those on the webcast and conference line, please.

[Operator Instructions] Thank you for your patience.

And just a reminder to those on the webcast, please mute your audio before -- mute your audio on the webcast before you do ask your question. As we wait for callers to queue up on the conference line, let's open up the floor to questions, and we'll come back to you shortly, Valerie.

Thanks very much. First question, lucky me. Thank you, everybody, for the presentation. Lots of great information. There was a few things I wanted to touch on, if I might. And maybe just start with Lynn Lake to sort of understand what then will be happening with that asset between now and when you presumably will make a decision in 2025 to proceed. So are we still going to get a study on Lynn Lake in the -- an updated study in the coming year?

Yes, we're working on that, and we would expect to update the market with a study once we have permitting in place. So if that happens this year, that's great. If that happens next year, that's when that will be.

Great. Very helpful.

I think our primary focus right now is on exploration and permitting. And of course, we're heavily engaged in discussions and consultations with the First Nations as well. So we're just more or less carrying out the work that we would have normally done because there was no -- there was no -- in other words, there was no imminent construction decision expected in any case. But effectively, there's a fair amount of work to be done between now and the end of the first quarter of next year in order to put all this in place. And I think at that time, we should be ready to present our study.

Yes, we continue to work on all of the peace building aspects, bringing up the level of engineering that effort is a fairly significant one that's ongoing. It just doesn't make sense to probably put that out until we've got permits in place because the permitting process can change some of the aspects of what you're building.

Well, the other reason I was asking the question too is, by the time we get to 2025, when you'll be looking at making a decision, I mean, a lot can change by then, too. So. Yes. And then we'd probably put out another update to the study.

It's a pipeline project, right? It's awfully good to have it. I'll tell you. We bought it at the very bottom of the market for just over $20 million. Since then, we've added over 1 million ounces of reserves and resources to it. It's a great project to have in our development pipeline. But it is in our development pipeline. When you've got a variety of assets within the company and you've got to manage capital allocation, there's some give and take that goes into that. And if we could have anticipated the rate at which Island Gold was going to expand, I mean it's just grown dramatically over a very brief period of time. And as that's happened, and is the quality of those ounces, the grade of those ounces have been added. It just made nothing but good sense for us to allocate more capital in that direction and get that production moving forward ahead of our Lynn Lake project decision. So one way or the other, Lynn Lake is going to be a good project. It's good grade. It's got very interesting economics. And I think regardless of what happens over the next 3 to 5 years, it's going to be a project that we can develop.

I also wanted to ask about the assumptions you made in getting to the mineable resource from the undiluted and pre-recovery assumption resource. So it looks like you grossed up the tonnage by 14%. So that would be the implied dilution then you assumed 5% recovery loss and then converted 92%. Is that roughly how that kind of adds up? I guess that's for you Nathan.

Yes. The combined recovery or conversion is 87%. That includes a 5% mining loss and that conversion on the inferred and measured and indicated and then using the diluted reserve numbers just straight as mined.

What was sort of the global dilution rate that you use?

So it's done by zone. And so what you're back calculating is would be kind of a mill-grade dilution. And so depending on the zone. The way it's calculated in the model, so it's using a mine shape optimizer. And so it's interrogating against the block model. So not all dilution is considered an all grade in that scenario. But the average -- sorry, dilution really dependent on both mining zone and type of stope. So downhole stoles typically have a lower dilution -- mining dilution than what we see in uphill stopes in different zones. So typically 20% to 30% dilution.

Yes. And as Nathan implied, the dilution incorporates grade within that. So it's not graded 0. So it's not dilution at 0% grade.

Okay. Got you. And then maybe just 1 final question on power rates. So obviously, you have the benefit of being able to rely on electricity for a lot of this operation. It reduces your diesel. But how long are your power contracts? And kind of what are the current rates in that? And then how do those rates get determined going forward to the length of the contract?

Yes. So our -- we what we got here, $0.067. That's what we're currently using. That's what we currently pay. That includes a rebate that we get from the -- what's called the NIER program, which is in Ontario Northern Industry rebate. That's been confirmed that, that will remain in existence well into the future by the -- at least by the current government. I suppose anything is subject to change. Those are of the rates we pay and that's how it works.

I still think I'd rather be building a mine in Ontario right now than just about anywhere else in the world. So if you're concerned about energy and power costs and water and every other thing that we face as an industry, absolutely, we're concerned about them, but I'd rather be in Ontario than anywhere else.

Thanks, John and team. Maybe my first question is on the mill. As you talked about, you also looked into the potential for building a new mill. That turned out to be not as cost effective. So I guess my question is, is the 2400 now limited by the mill, the size, the existing mill? Or if that's not the case, how much higher can you take it, given all the Scott Parsons, the geologists talked about exploration upside. Is there upside here at the mill?

So whether a new mill or an expanded mill, we would design that to average 2,400 tonnes a day, which means it will [ instantaneously stay ] to probably 2,700, 2,800 tonnes a day. All mills are expandable. So Scott finds more, we'll add a third circuit. Mills general -- I mean this mill has gone from 600 tonnes a day to 900 tonnes a day to 1,200 tonnes a day. Now we're going to take it to 2,400 tonnes a day. It actually currently has enough grinding capacity for about 1,600 tonnes a day. It's the rest of the mill that limits it. So by adding 1 primary ball mill, we can adjust the 3 mills that exist there now to have 2 train ball mills for 1,200 tonnes at each. So Yes, you can continue to expand those. We did look at a new mill because we thought, well, with this new ore body and the significant growth we've seen in it, maybe this site deserves a brand-new spanking mill. And in today's environment, going out for quotations on all the bits and pieces right now puts that mill very expensive. And frankly, we don't really see the need. We can continue to expand the existing mill. And there's plenty of mills operating in Northern Ontario and Northern Quebec that have been expanded from mills that are much older than this one. This one is kind of a 1985 vintage from -- it was built for [ Crema ], not even Island. So this is no problem to expand it.

It's been a while since -- it's been a while since I've been up there. So I just want to make sure, as Peter -- as you said, there's room for a third line, if you need it. Maybe my other question is on CapEx. CapEx has increased. However, I can see that you've done a good job in terms of limiting inflation. I think it was Nathan or Chris, who mentioned that it was only 11% increase after you're backing out the scoping changes. Clearly, looking ahead, you've done all the earthworks and some of the higher sort of risk items. But beyond that, clearly, everything is getting more expensive these days. What -- like can you actually -- or what can you do to further limit risk? Because we're still looking ahead into 2026. There's still a lot of runway until production starts. What are some of the key risk areas in terms of inflation? How do you make sure that there is no CapEx increases?

I'll start that, and maybe someone else might want to take over. But one -- big part of what we're doing is the shaft and the related infrastructure associated with that shaft, the building, the hoist house, the hoists themselves, that -- we've signed the contract for the shaft. We know what that is. We bought the hoist. We know what that is. We bought the steel for the head frame and truckload facility. We know what that is. We bought -- we've contracted for the steel that supports -- that goes inside the shaft. Certainly, there's still opportunities for inflation, but we've derisked a lot of that through that process. Another big part of the CapEx is all that underground development that we're bringing forward. So we're our own master in that regard in that it's that underground development is manpower and equipment. We have the equipment, we're going to buy more. We have the manpower. We might have to pay them more. But it's not -- you're not going to see stupid crazy blots and stuff like that, you might see general cost of living inflation in that sort of stuff. So where these things blow up often and you can look around it, and I won't have to name them. It's in tailings dam construction. It's in earthworks, it's in foundations. And as Chris pointed out in his slides, we're somewhere around 90% complete when you look at the fact that we've already done all the foundation work for our main tailing stamps and all of the down to bedrock routing, putting in [ drug ] curtains, all of that's done, right? So we're in great shape compared to many projects when it comes to capital because we're in an existing mine that's already had to go through all of that. We're not a greenfield starting from scratch.

And then maybe one last question. There might be a simple answer to this. Your time line today is Q1 2026. Previously, it was mid-2025. Could you maybe talk a bit more about the time line?

Yes, it's a combination of a few things. One would be a bit later start to what we had anticipated in the 2020 plan. Part of that is -- it took a bit longer to get our closure plan amendment through. And then the other thing is just taking into account this expanded reserve and resource and making sure we got it right from the start, slowed us down a little bit. And -- but those are -- that's the main reason.

I have a quick question for you here. Just to confirm, all these numbers are based on the 1,373 shaft depth. Okay.

That's correct, yes.

And that takes you out to 2039.

That's right.

Okay. So you've obviously done some work on expansion down to 2,000 meters, which would have enough capacity to continue on. Do you have approximations on how much that would cost to deepen the shaft?

Yes, you're probably looking at $50,000 to $60,000 a meter. And the work that we've done is primarily in the sizing of the hoisting plant. So that's where those numbers come from, that we're able to hoist at 3,500 tonnes per day from 2,000 meters.

Okay. Great. And would it be possible to go even deeper than that with that existing shaft? Or we have to go to an internal shaft or something else?

More likely you have to go to a [ wins ] or truck up to the loading pocket of that shaft or possibly deeper, but at a lower tonnes per day.

Yes. And just to add to that, a depth below 2,000 meters, the toll of the shaft actually starts getting quite far from the deposit because it's dipping to the south. So as the deposit grows and kind of gets deeper, it may not make sense to go deeper than just given the distance from the shaft to the deposit at that depth.

Not go deeper with the existing shaft put a [ win ] or a turtle shaft.

Thank you.

That would be a great problem to have those, Steve.

That's right.

And that would be the shaft excavation itself, and then there'll be additional development and what not to get down a bit?

Yes, that's a shaft deepening and equipment.

We do have a question from the conference line. Valerie, if you could please provide the polling instructions again and announce our first question.

[Operator Instructions] Our question is from Mike Parkin with National Bank.

Just a few questions. The tailings capacity, you're mentioning in the report already got [indiscernible] in terms of what you plan to mine. Does it have any potential will be expanded beyond that? Or would you have to be looking at a second facility if you continue on your exploration success you've been having?

We've done the engineering to get it to what we see we need. We haven't gone beyond that. So that's an open question.

Okay. And I guess you're already showing a dramatic improvement in GHG emissions and moving to a very small diesel fleet, I guess, because the scale of disease fleet once the shaft is online. It wouldn't make sense to try to support an electric fleet on such a small unit of diesel -- switching to electric.

We've considered it. It's still very much on the table. The diesel fleet is something that we currently operate and we know quite well. And so that's what we run within this model. But as battery and electric vehicle technology improves, is definitely something that we're actively investigating.

Yes. And we'd also look at electric scoops and jumbos as well.

Okay. And then -- it may have been in the report. I may have just missed it, but you've adjusted the cost for the inflationary environment we're in today. Are you maintaining that level of cost through the life of mine? Or are you seeing -- are you modeling kind of an elevated cost pressure for a shorter period of time and then returning to more normalized cost per se, cyanide or diesel?

No, we're incorporating the current inflated prices through the life of mine. We're not reverting to lower cost later.

Thank you, Mike. We don't have any other questions on the webcast or conference line. If there's any other questions in the room, we're happy to address those.

Just on the amendment to the closure plan, is that something relatively easy? Or is that more involved? I guess what's the time line on that?

Yes. We it's a relatively minor amendment to change the location of the paste fill plant from one location to another. So it's -- we don't see it as being that significant.

Okay. And then I think I saw in the presentation, 33% of CapEx committed. Any idea what that would be near around -- around year-end?

Well, it's going to grow a bit, but maybe it gets another -- maybe you get another 5 -- maybe it gets up to 40% or something by year-end?

Yes. The next big chunks of capital after the shaft or the mill and the paste plant and we're not starting construction of those until 2024. So we probably won't have any commitments on that until 2023 when we start ordering equipment.

Perfect. Just a quick one on grade reconciliation. I think when you first acquired Island, it was pretty overwhelmingly high and then kind of corrected over time. Where is that sitting kind of right now?

Great Yes, we're -- it's -- it continues to be generally positive but not the 20% positive that we saw under Richmont that's frankly one of the things that drew us to the asset was that conservatism in the grade that we saw. It's kind of within 5% typically now.

Yes. Over time, we've adjusted our capping factors in the reserve estimate to try and reel that -- those high deltas back into something more industry norm, 5%, and we've accomplished that.

It's interesting to remark that since 2013, that project has converted everything that was in resource to reserve. It's just gone very steadily, and it's pretty much been at a 1:1 rate. So it's clearly like nothing else I've ever been associated with in the more than 30 years I've been involved in the mining industry. And I don't think anybody else at this table has seen anything quite that good either. So Island Gold is clearly, it's an amazing ore body. When you've got a good ore body, it makes you look -- it makes the miners look good. It makes management look good. We can pretty much forecast what our production is going to be on a quarterly annual basis and the mine delivers. If anything, we tend to still have that positive reconciliation. So they're -- even now, they're still conservatism built into the block model. And that's why we have so much confidence in incorporating portions of the resource into the mine plan.

The other thing to note there is in that E1E zone where we've seen the bulk of the resource increases over the last year. We're still using a relatively low capping factor, which we won't adjust until we get some operating experience in there.

Thank you. We have a few more questions on the conference line. Valerie, if you could please announce the next question.

Certainly, our next question is from Kerry Smith with Haywood Securities.

Thanks, operator. Peter or maybe Nathan, was there any thought to moving staff to it looks like the bulk of the resorts are going to be developing, obviously, significant at least to that. And I know you've spent the money to kind of get the staff very ready. But was that looked at?

No. No, it wasn't. The current shaft location is actually on a really nice plot of land. It's kind of a nice solid bedrock on a ridge and so looking kind of further north of the shaft is [indiscernible] Lake and then kind of to the south of us is a lot of kind of swampy marshy land. So the spot that was selected for the shaft is really an ideal location from that perspective. It's the hoist plant and head frame are all founded right on Bedrock. And it's a nice dry ridge. It's -- I could settle there all day and just stare at it, to be honest.

Okay. And the second question I had, the contingency in the CapEx was $55 million, excuse me, in the old study. And it's $55 million in the new study and you've got, of course, slightly over $200 million, there's incremental capital. So can you just walk me through how that number was with the current?

Again, maybe I'll start and someone else will rescue me along the way here. But we -- as we've continued to engineer and derisk a thing and things have gone from early stage engineering to, in fact, kind of feasibility and detailed engineering certainly around the shaft area. We decreased the contingency on those components as they get locked in. but frankly, increase the contingency on some others like the mill expansion where we haven't done quite as much work. So net-net, it ends up the same place, but that's purely coincidence, the way it's worked. We've derisked it -- you would think just by derisking, it should have gone down, but it's other areas we've added some contingency. So that's -- I guess we could go off-line and we could walk you through one by one what they are, if you'd like later, Kerry.

Yes. And in some of the areas where we've got commitments that are not going to be subject to inflation or scope change, we've got much less contingency there.

Okay. I mean, my reaction was that $200 million more CapEx that I just got the dollar amount, the contingency would have been a bit higher. That was my only observation. Okay. And the other question I had was you talked about this [ Lynn ] well drift for better drill access. When would that be completed? And when would you have that available for [ going ]?

It's something we're considering what we are starting later this year at the 925 level. Part of that will be initially used for infill drilling purposes and starting in 2023. But as that development happens into the hanging wall. We are looking at allocating and it is incorporated into life of mine development plans, meters for further exploration development at 925 into the hanging wall, which will get us out right on top of the -- on top of the ore body, will allow us to continue testing of the depth. So eventually looking at being more effective and efficient in terms of costs and time by drilling that from underground rather than a transition away from the surface directional.

Okay. Yes, got it. And then the last question I had was the new crushing circuit, Chris, that you're installing in the mill. What is the notional or nominal throughput in that crushing circuit on its own?

That Yes. It will be well sized for 2,400 tonnes a day and normally crushing circuits could do quite a bit more. It's I don't -- we haven't entered into any sort of detailed engineering on that aspect at [ Kerry ]. We'll give ourselves [indiscernible].

Kerry, sorry, it's Jamie. Just one quick question. Your question with respect to contingency. You noted that you suspected the number would have been a bit higher. A big part of that capital increase is the accelerated development, right? So there's $100 million of what was sustaining capital that was moved forward into growth capital, and you don't apply a contingency to that it's based on our ongoing development costs.

Right. Got you. Okay. That's a good point. Okay. And so what would be the bottleneck in the plant then do you think, Peter? Would it be the tanks, I suppose?

Sorry, what would be the bottleneck?

Yes. I'm just thinking about as you push ahead here.

There'll be incremental things. But I think ultimately, it boils down to the grinding circuit. So you will size this for -- comfortably to do 2,400 tonnes a day. Could you push it -- you can usually push those things 10% more. But beyond that, you're looking at more grinding horsepower?

Our next question is from John from [indiscernible] Advisers.

Thank you. Good morning, everyone and very good presentation. [ John Bayer ] with the [indiscernible] advisers. Not to be a [ Donnie ] downer here, but just kind of a general broad question that I think all of you might be able to address. And that is, what's your greatest concern that your projections and profitability numbers and so forth don't play out as expected? You've got some time here between now and when you hope to first get into production and so forth. What are your biggest -- what keeps you up at night? Let's put it that way.

Yes, it's Jamie here. Yes, I'd say the biggest variable is, of course, the gold price. That's a significant factor. But one of the points that I made in the slides I presented was that Island is such a high-quality ore deposit with 10 grams and industry low cost that doesn't really -- gold could drop by $400 tomorrow. It doesn't really impact our decision to move forward with this. We'd still generate lot of positive free cash flow even at substantially lower prices. So I'd say that's the biggest risk, both to the downside and potential to the upside.

Anything operational? I mean, obviously, gold price swings as probably your biggest variable there because it sounds like you've got pretty much everything else locked up as far as procurement and so forth. So anything else regulatory wise?

Maybe I'll start, you can -- on the operational side, I mean, it is an operating gold mine. That's -- this is not many projects are greenfields and there's so much start-up difficulty with things like that. This is an operation that we've been operating now for 5 years and has been in operation for 15 years altogether or their boats. So it's -- the workforce is there. We're in a supportive community. It doesn't get much better in the world of gold mining than where we're located right there. So I have very -- you're going to have hiccups with operations all the time, but you're not going to have show stoppers.

Exactly. More or less, what I was going to say, we're operating that mine now. We have a very clear understanding of the ore body. Everybody is trying to figure out when something looks this good. Well, where is -- what am I missing? Where is the blind spot? And really, what it comes down to -- is our schedule. I mean, anybody who's going to build a project of this scale that you're planning to build out over the course of a number of years. Everybody sitting at this table is focused on that schedule. And why I feel very confident in our ability to do this is just look at our track record. When we were just starting out building Mulatos, we're 1 of the few companies that built a project at that time on time and within budget. When it came to taking on Young-Davidson, which was a massive task, we took that from 3,400 tonnes a day to 8,000 tonnes a day built out all the lower mine infrastructure, and we built it right within the schedule that we've set. We've built multiple mines down at Mulatos, including San Carlos, [ Cerro Pelon ], La Yaqui, now La Yaqui Grande. Those are all stand-alone mines. And we call that a lot as everybody talks about Mulatos. But if you go down there, you'll see we've been operating from a whole variety of pits and in San Carlos case, from underground. So the company has a tremendous amount of experience in terms of construction, practically hasn't been a time when we haven't been building something over the last 6 or 7 years. It's the key reason why I believe we can take on a project of this scale now and plan it, organize it and execute on it and get it built on time. But it's where the risk lies.

Yes. It's -- now I've got one last follow-up, kind of a different direction here. Given your additional acreage acquisition along trend from the Trillium acquisition, how much exploratory activity do you anticipate building on some of these old mines that had existing -- either existing production or good indication of ore bodies.

They do remain advanced targets, and they are advanced targets that the first step we need to do is those are historic mines, compile the data to make sure we have a good handle on what's controlling the mineralization there, what was mined and identify the exploration upside. There definitely is exploration upside of both those historic mines that we did acquire. And the other exciting part of it is looking outside of those mines. Those were 2 patents that companies held for decades in and operate [ out of ] now we have the surrounding ground and it's looking at how you target effectively to find more of the mineralization that hasn't been tested yet. So it is a high priority in terms of our exploration pipeline, and it's something that we will start tackling with -- on the ground exploration in 2023. This year, we're working on really understanding those deposits and making sure we're approaching them correctly.

So not that much CapEx in that area? Am I hearing that right, probably maybe 2 to 3 years out to be a little more advanced aggressive?

In terms of the regional exploration, including those targets, we're probably looking at $3 million to $4 million a year in terms of dollars allocated to exploring that larger land package and it's just doing it systematically and being effective about it. And we make a discovery on that property, then we'll look at spending some more money on it, but in the meantime, probably $3 million to $4 million a year.

Very good. Thank you very much. Appreciate you taking my questions, and best of luck.

Thank you.

Thank you, John. If there's no further questions on the floor here, we'll thank everybody for joining us in person and on the webcast. Please do follow-up and reach out to any one of us if you do have any questions, and we look forward to speaking with all of you soon.

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